Friday’s analyst upgrades and downgrades

Inside the Market’s roundup of some of today’s key analyst actions

RBC Dominion Securities analyst Darko Mihelic thinks Toronto-Dominion Bank’s (TD-T) strategic review is a “significant opportunity for the bank to reevaluate its whole strategy given the constraints under which it must now operate.”

“Suggesting that 2025 is a transition year for the bank may be an understatement,” he added. “This is only the second large bank that we know of that has operated under an asset cap and the only Canadian one. There is no template to follow and getting out from under the cloud of the asset cap may take 5 years plus.

“One of the things we learned when TD announced its AML resolution was that its U.S. bank kept its AML budget flat for a significant period of time (from 2014 until 2022). This was a bad business decision that ultimately proved very costly for TD. This leaves us with a serious question: Are other parts of the organization using similar tactics to achieve operating leverage? On several occasions, TD had suggested that it was always ‘investing’ in its franchise even after finding areas where costs could be removed; therefore, we do not know if TD can answer this question with any degree of credibility, right now.”

Also calling the move “prudent” and “a thoughtful course of action given the constraints it is working under,” Mr. Mihelic thinks incoming CEO Raymond Chun has a “significant challenge” to satisfy U.S. regulators and authorities on on the bank’s anti-money laundering issues.

“He also has a significant opportunity to reassess TD’s business from the ground up and we were encouraged by his comment that ‘everything is on the table’,” he added.

On Thursday, shares of TD slid over 7 per cent after it reported adjusted earnings per share for the fourth quarter of $1.72, falling short of both Mr. Mihelic’s $1.82 estimate and the consensus projection of $1.81. The miss came from higher-than-anticipated non-interest expenses, which rose 11 per cent year-over-year, with the analyst expecting further increases to come as it remediates its Bank Secrecy Act (BSA)/anti- money laundering (AML) controls,

“We update our model to reflect lower expectations in Corporate and U.S. Retail mainly on elevated expenses, higher impaired provisions for credit losses (PCLs) in Wholesale Banking, and a higher tax rate for the Global Minimum Tax. Our core EPS estimates decrease to $7.92 (was $8.29) in 2025 and $8.55 (was $8.64) in 2026,” said the analyst.

Keeping a “sector perform” recommendation, Mr. Mihelic cut his target for TD shares to $77 from $85. The average target on the Street is $83.93.

“We lower our target P/E multiple a half turn to 9.0 times, which we apply to our 2026 core EPS estimate as we view 2026 as a better indicator of TD’s earnings profile than 2025 (though the transition may well lead into 2026),” he explained.

Elsewhere, a pair of analysts downgraded TD shares:

* Scotia’s Meny Grauman to “sector perform” from “sector outperform” with an $81 target, falling from $98.

“As we highlighted in our First Look note [released shortly after the report], more disappointing than TD’s EPS miss itself is the lack of updated guidance,” he said. “We understand why growth will be difficult to achieve in 2025, and why TD had to suspend its current medium-term financial targets, but we find it harder to understand why investors will need to wait until H2 of 2025 to get a clearer sense of what Management believes is the earnings power of the company under its US consent order. It is perfectly reasonable for an incoming CEO to want to conduct a thorough strategic review, but these are no ordinary times for the bank, and we would have expected a little more guidance amid all the uncertainty. On the Q4 call, Management was talking bullishly about its various businesses, which sounds like the growth outlook could actually be quite good, but at this stage we need evidence of that. For a while now we have gotten behind this name with the view that the market was being too harsh on valuation even considering the difficult situation the bank was in. The discount is still there, but we now doubt that it can materially narrow before we get updated guidance. As a result we are downgrading the name.”

* Desjardins Securities analyst Doug Young to “hold” from “buy” with a $80 target, down from $88.

“Cash EPS and adjusted pre-tax, pre-provision (PTPP) earnings were below estimates. It was very noisy,” he said. “In our view, this stock remains range-bound over the coming year, with lots of volatility, until the strategic review gets completed (and it hosts an investor day) later in FY25. Therefore, we are moving to a Hold (from Buy). We reduced our cash EPS estimates.”

Analysts making target changes include:

* National Bank’s Gabriel Dechaine to $80 from $85 with a “sector perform” rating.

“Some investors were expecting that TD would help clear up forecast uncertainty beyond 2025,” said Mr. Dechaine. “However, the opposite was delivered with TD suspending its medium-term EPS growth/ROE/operating leverage targets, understandably so. The reality is there are many moving pieces in the TD financial picture following its Global Regulatory Settlement with U.S. regulators that included US$3 bln of fines and an asset cap on its U.S. P&C banking operations. .... Management also stated that all options are on the table in terms of potential asset disposals, etc., which could result in material changes to the bank’s balance sheet beyond what we’ve already witnessed. The bank aims to provide an update to its future growth strategy at an Investor Day to be hosted during H2/25. Until then, we believe the stock will most likely trade sideways.”

* CIBC’s Paul Holden to $90 from $93 with an “outperformer” rating.

“We are not surprised that TD reported a weak FQ4 but are surprised by F2025 expense guidance and the removal of medium-term targets. While no EPS growth is expected in F2025, we remain confident that TD can grow EPS by 5-7 per cent per year thereafter, even with the asset-cap in place. We maintain our Outperformer rating on the premise that EPS growth will resume in F2026, that U.S. balance sheet re-positioning could result in earnings upside, that TD will produce solid earnings growth outside of U.S. retail banking, and that the bank’s strong capital generation will put it in a position to buy back stock,” said Mr. Holden.

* Canaccord Genuity’s Matthew Lee to $87 from $89 with a “buy” rating.

“Along with the quarter, the bank announced the initiation of a strategic review, considering potential options for returning the bank to its historical ROE levels. As a result, management opted to remove its EPS growth, operating leverage, and ROE guidance, which came as a surprise to us given that investors generally view these targets as longer term. In the immediate term, TD guided to mid-single-digit expense growth and challenged EPS, which we expect implies negative growth for the year. We have opted to maintain our BUY rating on TD given valuation and our view that the bank still has the bones of a structurally advantaged bank. With that said, we expect that the stock will likely remain mired until management can provide greater colour into its recovery path and medium-term growth expectations. We have increased our NIX forecast, driving down EPS but continue to model mid-single-digit EPS growth in F26,” said Mr. Lee.

* BMO’s Sohrab Movahedi to $90 from $94 with a “market perform” rating.

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While acknowledging Bank of Montreal’s (BMO-T) earnings release came with a credit “surprise,” Scotia Capital analyst Meny Grauman has “confidence that we can begin to put it in the rearview mirror,” leading him to raise his recommendation to “sector outperform” from “sector perform” previously.

BMO shares rose 4.2 per cent on Thursday despite reporting core cash EPS of $1.90, down 35 per cent year-over-year and 28 per cent quarter-over-quarter and falling 19 per cent below Mr. Grauman’s $2.35 estimate and 20 per cent under the Street at $2.38. The miss stemmed from “much” higher-than-expected provisions for credit losses (91 basis points versus the analyst’s 56 bps projection and the consensus at 62 bps).

“In our First Look on the quarter [released shortly after the report] we noted that the key to how the stock trades off a 20-per-cent miss to the Street will be almost solely dependent on management guidance on credit,” said Mr. Grauman. “Here we got encouraging signals during the earnings call that were more positive and clearer that what we heard after Q3′s credit surprise. The bottom line is that management now has confidence that BMO’s impaired PCL ratio peaked this quarter and will moderate through 2025.

“This does not mean that BMO’s credit story will fully normalize in 2025, but there is a strong signal that the worst is behind this bank, and the market is certainly acknowledging that. A cynical investor may still wonder if credit can’t continue to surprise for the worse, as it did for much of this year, but what gives us additional confidence is the macro trends in the U.S. which have improved materially over the past few quarters, particularly in the wake of the Trump election. We have always believed in BMO’s U.S. story, and recent developments only make the BoW acquisition more exciting.’

Mr. Grauman hiked his target for BMO shares to $160 from $147. The average on the Street is $138.93.

“Our 2025E core cash EPS increases by 3 per cent to $10.95 mainly reflecting management guidance, notably an improving credit outlook with the bank’s impaired PCL ratio dropping into the high 40 bps range,” he said. “Our 2026E core cash EPS climbs 5 per cent to $13.59 primarily driven by improving credit trends and accelerating loan growth. We also boosted our buyback assumption from 2.5 per cent to 3 per cent given the bank’s NCIB announcement. We value the shares at 11.2 times 2026E EPS and as a result our share price climbs by $13 to $160. We upgrade BMO from SP to SO as we begin to look beyond BMO’s credit challenges this year.”

Elsewhere, citing “declining credit losses, accelerating loan growth, stronger capital markets earnings, and the potential to generate the highest EPS CAGR over the next two to three years,” CIBC World Markets analyst Paul Holden upgraded BMO to “outperformer” from “neutral” and raised his target to $150 from $134.

Others making target adjustments include:

* National Bank’s Gabriel Dechaine to $153 from $148 with an “outperform” rating.

“Q4/24 included the highest PCL ratio of what was already a bad year for BMO’s credit performance ... and that was a good thing,” said Mr. Dechaine. “For starters, two thirds of excess provisions were due to a $400 mln+ addition to performing provisions, which we believe alleviated concerns related to the bank’s allowance levels (i.e., the performance ACL ratio rose by 6 basis points quarter-over-quarter after being flat since Q1/24). Moreover, the bank positioned the 66 bps impaired PCL ratio as a high watermark, guiding to gradually lower losses over the course of 2025 as large/idiosyncratic exposures from the 2021 origination vintage have been impaired & provisioned. Finally, the quarter marked the first over the past nine to see a decline in the GIL ratio, though $1.2-billion of net write-offs played an important role (i.e., new formations were up 20 per cent quarer-over-quarter).”

* RBC’s Darko Mihelic to $133 from $106 with a “sector perform” rating.

“BMO identified larger loans in the 2021 vintage that caused credit issues in 2024 and it expects Q4/24 impaired PCL ratio to be the peak, moderating to historical averages by the end of 2025/early 2026. We have modelled as such and see a rapid increase in EPS into 2026 (we also assume buybacks now). We increase our price target to $133 (from $106),” he said. “Maintaining Sector Perform. BMO is adamant it can restore its ROE and while lower PCLs will do a lot towards that goal, PPPT growth is also a driver, and we have some concerns regarding cost control.”

* Desjardins Securities’ Doug Young to $140 from $134 with a “hold” rating.

“Adjusted pre-tax, pre-provision (PTPP) earnings were 1 per cent below our estimate, while cash EPS missed by a larger margin due to higher PCLs. That said, management believes PCLs have peaked and should moderate over the coming year. We increased our FY25 and FY26 estimates to reflect mostly stock buybacks,” said Mr. Young.

* Canaccord Genuity’s Matthew Lee to $148 from $143 with a “buy” rating.

“Our key takeaway from the results is that Q4 represents the peak for PCLs both on an impaired and total basis. In tandem with positive operating leverage, we believe BMO is now positioned to deliver very robust growth across all its operating segments. Along with the quarter, BMO also announced an NCIB program, which we view as a positive, reflecting management’s confidence in its ability to contain its credit while contributing to EPS growth. Overall, we came away from the quarter more constructive on the BMO story. While we acknowledge that PCLs may still be somewhat lumpy, we expect the general trend to demonstrate improvement throughout the year with the firm returning to the mid-30-per-cent impaired range by the middle of F26,” said Mr. Lee.

* BoA Securities’ Ebrahim Poonawala to $142 from $134 with a “buy” rating.

“We believe that downside risk to Bank of Montreal (BMO) shares from continued poor credit performance (tied to pandemic era loans and shared national credits) offsets the potential benefit of superior growth in BMO’s U.S. markets. While macro backdrop improvement could provide support to the credit performance of BMO’s loan portfolio, we see better risk/reward at peers that would also stand to benefit from an improving macro backdrop,” he said.

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National Bank Financial analyst Gabriel Dechaine called Canadian Imperial Bank of Commerce’s (CM-T) quarterly release “a splendid finish.”

CIBC shares rose 4.4 per cent on Thursday after it core cash earnings per share of $1.91, exceeding the $1.78 estimate of both Mr. Dechaine and the Street. The beat was driven by lower provisions for credit losses (a 12-cent impact) and higher pre-tax pre-provision earnings (1 cent).

The analyst called the report encouraging from an investing perspective, pointing to positive operating metrics and margin performance at the all-bank level, a “strong” credit performance led by lower than expected impaired loan losses and a 8-per-cent dividend increase.

“CM reported lower than expected PCLs (i.e., by 26 per cent this quarter) for the second quarter in a row, with lower impaired provisions driving the result,” he said. “Moreover, the bank’s GIL balance rose a modest 6 per cent quarter-over-quarter. This performance was achieved despite a modest uptick in U.S. Office CRE GILs/PCLs that, to be fair, have become a lesser concern over the past year. Guidance was better than expected, with the bank reiterating its mid-30s impaired loss ratio guidance in 2025. This outlook reflects rising impairments in the Canadian retail portfolio, offset by improving credit performance in the U.S. commercial portfolio, resulting in a gradually declining PCL ratio over the course of the year.”

“CM’s ROE target has been lowered to 15 per cent plus from the 16 per cent plus outlined at its 2022 Investor Day. The driver of the change relates to higher capital requirements. The old target was predicated on a minimum target CET 1 ratio of 11.5 per cent, whereas the current one is predicated on a range of 12.75-13 per cent. Nonetheless, the target is a stretch above the bank’s current 13-per-cent output. Management highlighted incremental fee income, better margin performance and efficiency gains as key drivers to this objective. Finally, it is a firmer objective considering that regulatory capital requirements are not likely to increase in the foreseeable future, in our view.”

Increasing his projections to reflect higher margins and other income, Mr. Dechaine raised his target for CIBC shares to $100 from $94, “reflecting increased confidence in CM’s growth potential,” with an “outperform” recommendation. The average is $91.36.

Other changes include:

* Scotia’s Meny Grauman to $114 from $108 with a “sector outperform” rating.

“2024 has proven to be a year of redemption for CIBC,” he said. “After all this was the year that the bank shook off its past missteps, and with that a significantly discounted valuation. And it did this through a combination of earnings consistency and good credit management. With the bank’s US CRE exposure looming large at the start of the year, this positive outcome for the shares was not guaranteed, but CIBC got in front of the problem early and made a well-timed decision to sell part of the portfolio. Given the important role that credit had in the bank’s re-rate it is very fitting that Q4′s beat was driven by credit with PCLs coming in below expectations thanks in part to lower impaired provisions in CIBC’s mortgage book. For many years this was the portfolio that loomed large in investors’ eyes as a source of risk for this bank, and now we end a year of outperformance with clear evidence that this portfolio is performing well and that the mortgage renewal wall many had feared for so long will not derail that.”

* RBC’s Darko Mihelic to $97 from $74 with a “sector perform” rating.

“Q4/24 was stronger than anticipated on lower than expected PCLs,” said Mr. Mihelic. “We believe CM’s guidance on PCLs is credible as is its desire to buyback stock and not overextend itself for mortgage growth. We model CM with higher but below average loan growth. This shows up in slower relative revenue/PPPT/EPS growth in 2026. We believe PCLs have likely peaked and even though its ROE target is now lower at 15 per cent, we do not see this level achieved over our forecast period.”

* Desjardins Securities’ Doug Young to $100 from $94 with a “buy” rating.

“Adjusted pre-tax, pre-provision (PTPP) earnings were 2 per cent above our estimate, while cash EPS handily beat our expectation as well as consensus. We found the messaging around NIMs, expenses, PCLs, buybacks and the path toward achieving a 15-per-cent ROE encouraging,” said Mr. Young.

* Canaccord Genuity’s Matthew Lee to $99 from $92 with a “hold” rating.

“CM reported solid Q4 results [Thursday] morning with EPS beating our estimates on a PCL reversal and cross-company revenue strength. We were impressed by the firm’s robust 7-10-per-cent EPS growth guidance, suggesting positive operating leverage, steadfast credit, and improving ROE. While CM reduced its ROE guidance for the medium term, we do not necessarily see that as a negative as it largely appears capital related. Management maintained its expectation to fully utilize the NCIB, suggesting further buyback activity in the early part of F25,” said Mr. Lee.

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Following a “strong” third quarter, Citi analyst Paul Lejuez is “more confident than before” that Lululemon Athletica Inc. (LULU-Q) will see a return to growth in the United States.

“However, uncertainty remains and with shares trading (pre-market) at an F25E P/E multiple of 24 times, we see a balanced risk/reward,” he added.

After the bell on Thursday, the Vancouver-based apparel company reported earnings per share for the quarter of US$2.87, exceeding both Mr. Lejuez’s US$2.79 estimate and the consensus forecast of US$2.68. Total sales rose 9 per cent with comparable same-store sales up 3 per cent, also topping the Street’s expectations (7 per cent and 2.5 per cent, respectively).

“While Americas comp of negative 2 per cent was still weak, management is seeing the customer respond to newness/innovation in women’s, pointing to 1Q25 for an expected inflection in the U.S., as newness builds further,” the analyst said.

“4Q guidance of $5.56-5.64 is in-line w/cons w/markdowns expected to be down slightly year-over-year (suggesting LULU is not getting more promotional). 4Q guidance seems conservative, as management indicated they were pleased with Black Friday weekend and guidance assumes a 300 basis points comp headwind from a shortened holiday calendar (but we did not see evidence of that in 4Q19) and GM pressure from fixed cost deleverage (despite 53rd week benefit).”

After raising his fiscal 2024 and 2025 EPS projections to US$14.01 and US$13.59, respectively, from $14.01 and 13.59 to reflect his expectations for stronger U.S. comps and higher gross margins, Mr. Lejuez hiked his target for Lululemon shares to US$380 from US$270, keeping a “neutral” recommendation. The average on the Street is $361.52.

Other analyst changes include:

* BoA Securities’ Lorraine Hutchinson to US$420 from US$355 with a “buy” rating.

“We believe LULU is one of the sales and earnings growth stories in retail with a strong brand, innovative product and significant international expansion opportunity. We expect solid same-store sales growth to support continued operating margin expansion,” she said.

* BMO’s Simeon Siegel to US$302 from US$265 with a “market perform” rating.

“LULU reported a top-and-bottom line beat on flat U.S. sales and better GM on better product margin and flat markdowns. Looking ahead, management guided sales/EPS above the Street at the High-End (after four quarters of guiding below). We continue to see LULU as a strong, but overstretched, brand and believe that with a generally skeptical investor base, positives will trigger squeezes, but we fear long-term concerns as the brand continues to work on stretching further,” he said.

* Stifel’s Jim Duffy to US$438 from US$370 with a “buy” rating.

“FY3Q was a high-quality revenue and EPS beat to consensus (+$39-million/+$0.16), featuring gross margin upside and clean inventory, and the FY guide was raised (+$45-million/+$0.07 at the midpoint),” he said. “Comp trends were stable across regions from 2Q dispelling the notion of fading brand relevance and competitive pressures. Messaging on FY1Q25 timing for incremental newness and U.S. women’s business inflection remains consistent. While there aren’t yet proof points to substantiate this, strong execution in FY2H adds to credibility and International momentum underscores global growth potential. At the after-hours price of $376.50, LULU shares have re-rated 39 per cent CY4Q quarter-to-date (vs. SPX up 5 per cent). While mispricing is less pronounced, we continue to view risk reward favorably. LULU’s economic model (35-per-cent-plus ROIC) and global growth prospects justify a premium rating.”

* Keybanc’s Ashley Owens to US$400 from US$350 with an “overweight” rating.

“LULU pointed to progress within initiatives to improve U.S. trends, including increased coordination within the product team and chasing into colors/prints helping improve newness. We think opp. persists within seasonal newness in colors/categories (golf, tennis, etc.), brand awareness, and int’l/store openings,” she said.

* Raymond James’ Rick Patel to US$400 from US$355 with an “outperform” rating.

* Truist Securities’ Joseph Civello to US$420 from US$360 with a “buy” rating.

* Wells Fargo’s Ike Boruchow to US$350 from US$285 with an “equal weight” rating.

* JP Morgan’s Matthew Boss to US$425 from US$338 with an “overweight” rating.

* Piper Sandler’s Anna Andreeva to US$340 from US$260 with a “neutral” rating.,

* Barclays’ Adrienne Yih to US$378 from US$361 with an “equalweight” rating.

* Guggenheim’s Robert Drbul to US$415 from US$350 with a “buy” rating.

* Telsey Advisory Group’s Dana Telsey to US$430 from US$360 with an “outperform” rating.

* Bernstein’s Aneesha Sherman to US$360 from US$325 with a “market perform” rating.

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TD Cowen analyst Graham Ryding expects credit trends to continue to weigh on earnings and valuation for EQB Inc. (EQB-T), leading him to lower his recommendation to “hold” from “buy” previously, seeing “limited upside potential” after a “negative” fourth-quarter financial report.

“PCLs weighed on FQ4/24 and F2024 results, and earnings adjustments were material this quarter (reduces earnings quality),” he said. “Impairments continue to move higher, suggesting PCLs could remain elevated over the near term. Medium-term guidance is constructive, but F2025 visibility is more muted (we are in line with guidance).”

Mr. Ryding expects credit trends to continue to deteriorate in the near term, emphasizing impairments were up 20 per cent from the previous quarter and 79 per cent year-over-year.

“This includes personal arrears being up 26 per cent quarter-over-quarter (up 150 per cent year-over-year), commercial arrears moving up 15 per cent quarter-over-quarter (up 34 per cent year-over-year), and equipment finance arrears increasing a further 12 per cent quarter-over-quarter (up 109 per cent year-over-year),” he said. “Provisioning to date, and commentary, suggests management is not overly concerned with personal mortgage credit losses (LTVs of 63 per cent on average protect against losses). We see potential for further PCLs around commercial (lumpy) and equipment leases (weaker collateral). Management described 1H/F25 as potentially choppy for credit trends, with 2H/F25 expected to improve.

“Medium-term guidance is constructive, but the outlook for F2025 remains fluid in our view given the potential for PCLs to remain elevated (the key headwind in F2024). Management is guiding towards NIMs more than 2.00 per cent (vs. 2.07 per cent in F2024), solid origination growth (30 per cent for single family uninsured), lower PCLs (12bps vs. 19bps in F2024), some expense growth, further non-interest revenue growth, and the potential for some buybacks. We are in line with this outlook and forecasting 6-per-cent EPS growth in F2025. Our F2026 outlook is in line with medium-term guidance (8-12-per-cent loan growth, 12-15-per-cent EPS growth, and 15-per-cent-plus ROE), with lower PCLs (8bps vs. 12bps in F2025) supporting our 16-per-cent EPS growth forecast.”

With a reduction to his 2025 earnings expectation, Mr. Ryding cut his target for EQB shares to $110 from $126, which he said reflects “a fluid near-term credit and earnings outlook.” The current average on the Street is $114.

“We continue to believe that over time, EQB should trade closer to the large banks given the rarity factor for quality mid-sized banks in Canada, EQB’s strong longer-term earnings and BVPS growth track record, and we value the high ROE branchless model and quality digital bank,” he said. “That said, over the near-term we believe weakening credit trends could continue to weigh on EQB’s earnings and F2025 outlook.”

Elsewhere, Scotia’s Meny Grauman cut his target to $130 from $135 with a “sector outperform” rating.

“Although we were disappointed by EQB’s large PCL miss (even larger on a reported basis), the challenges the bank is dealing with in its equipment finance portfolio does not derail our thesis on this name. We are not saying this credit misstep won’t weigh on valuation for the time being, but we still think that the discount to the group will be able to continue to narrow later next year as long as management delivers on its guidance for both PCLs and loan growth,” he said.

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Expecting higher duties to pressure its earnings before interest, taxes, depreciation and amortization, BMO Nesbitt Burns analyst Ketan Mamtora lowered Canfor Corp. (CFP-T) to a “market perform” recommendation from “outperform” on Friday.

“Canfor is still trading below book value, so valuation is not an issue,” he said. “However, we believe that Canfor’s lumber performance for the next couple of years will be challenged due to a significant jump in export lumber duties (likely to 35-40 per cent) — and, above the industry average. With a tougher outlook for the next couple of years, we are downgrading.”

Also pointing to “depressed” lumber prices thus far in 2024, Mr. Mamtora expects duties to “remain elevated” into 2027.

“[Approximately] 16 per cent of Canfor’s global capacity is in British Columbia and 14 per cent in Alberta. US represents a little over 40 per cent of its capacity and the balance 27 per cent is in Europe via 70-per-cent ownership of Sweden based VIDA,” he noted.

“Tough operating environment. Canfor has generated an LTM [last 12-month] EBITDA loss of $373-million in its NA lumber operations. Between supply cuts, higher expected duties, and modest improvement in U.S. housing, lumber prices should move higher. Even then, because Canfor’s duties are going to be above the average, we expect its relative performance to be challenged.”

The analyst’s target for Canfor shares remains $20, below the $21.67 average on the Street.

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Believing its dividend growth should “command a premium,” TD Cowen analyst Vince Valentini named Telus Corp. (T-T) to the firm’s “Best Ideas 2025″ list in a report released before the bell.

“TELUS is emerging as the only large cap name in Canadian telecom with both a yield at least 350 basis point above 10-year bonds, and dividend growth,” he said. “If/when the BoC keeps cutting rates, we believe T shares will be coveted.”

“TELUS is expected to sustain 7-per-cent dividend growth for the next three years, with a commitment to this from the company being likely at the AGM (and Q1/25 release) in May. The combination of this growth, and a yield currently above 7 per cent, should drive outsized investor interest in T shares relative to BCE (higher yield, but high risk of a dividend cut, or at a minimum no dividend growth), RCI.B (lower yield and no dividend growth), and QBR.B

(lower yield and less scale and liquidity). The income characteristics at TELUS screen very well versus Canadian alternatives, and it also stacks up well versus the combination of dividend growth and yield that we see from global telco names in a figure below. Our target price is based on a blend of dividend yield and EV/EBITDA, but for perspective, we highlight that a move back to the long-term average dividend to bond yield spread of 273bp would

put the stock at about $30 in one year (using a bond yield estimate of 3.0 per cent and using a dividend 7 per cent higher than today).”

Mr. Valentini also called Telus’ dividend quality as “reasonable,” noting “The payout ratio on FCF (TD Cowen definition) remains above 100 per cent in the near-term (111 per cent estimated in 2025), but a combination of lower opex and lower capex (see next point on FTTH leadership) is expected to drive the payout below 100 per cent in 2026 (97 per cent estimated, albeit this would be right around 100 per cent if one backs out the portion of TIXT FCF that is not owned), even with 7-per-cent dividend growth in both 2025 and 2026. We do not view the payout ratio as ideal, but we believe it is manageable and

acceptable (and it is better than what we see at the main yield alternative in the space, BCE). Other than dividends paid in shares under the DRIP (which we hope goes away by 2026), we do not expect TELUS to have much FCF post dividends to lower debt, but non-core asset sales should help with debt reduction and thus we believe the combination of leverage and payout ratio creates high quality dividend characteristics for investors.”

The analyst has a “buy” rating an $25 target for Telus shares. The current average is $24.32.

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In other analyst actions:

* “After a solid run as valuations catch up,” ATB Capital Markets’ Chris Murray downgraded Mainstreet Equity Corp. (MEQ-T) to “sector perform” from “outperform” while raising his target to $220 from $215. The average is $226.

“Mainstreet Equity announced Q4/FY24 results, with revenue, net operating income (NOI), and diluted FFO per Share of $66.9-million, $45.7-million, and $2.60, respectively, below ATB estimates $73.6-million, $47.5-million, and $3.04,” said Mr. Murray. “The Company delivered another quarter of double-digit growth as favourable rental dynamics in core markets, highlighted by a 3.4-per-cent average vacancy rate, and ongoing stabilization of recently acquired units. M&A activity slowed in the quarter following a very active Q3/FY24, with capitalization rates creeping up to 5.3 per cent. Management was constructive on its outlook heading into 2025, with historically low vacancy levels, increasing stabilization rates, and gradual mark-to-market adjustments in core regions all supportive of healthy NOI growth in 2025. While MEQ remains favourably positioned to benefit from the demand/supply imbalance and fragmented market conditions in Western Canada, we are downgrading the shares to Sector Perform as valuations fairly reflect our growth outlook.”

* Desjardins Securities’ Chris MacCulloch raised his Athabasca Oil Corp. (ATH-T) target to $6 from $5.75 with a “buy” rating. The average is $6.33.

“We are increasing our target for Athabasca ... reflecting positive revisions to our estimates following the release of constructive 2025 guidance,” he said. “Most notably, we were surprised by lower-than-expected thermal capital spending as the company begins laying the foundation for an expansion of Leismer production capacity to 40,000 bbl/d by 2027. Meanwhile, Duvernay Energy Corporation will remain self-funded, leaving 100 per cent of thermal FCF to be allocated toward share buybacks.”

* BMO’s Thanos Moschopoulos raised his D2L Inc. (DTOL-T) target to $20 from $14.50 with a “market perform” rating. Other changes include: Stifel’s Suthan Sukumar to $20 from $17 with a “buy” rating, TD Cowen’s Daniel Chan to $22 from $15 with a “buy” rating, Eight Capital’s Kiran Sritharan to $22 from $17 with a “buy” rating, Canaccord Genuity’s Doug Taylor to $22 from $14.50 with a “buy” rating and RBC’s Paul Treiber to $22 from $16 with an “outperform” rating. The average is $18.45.

“We remain Market Perform on D2L and have raised our target price following Q3/25 results that were a beat on revenue/EBITDA, while management raised FY2025 guidance,” Mr. Moschopoulos said. “We’ve modestly raised our FY2026 estimates. While we prefer other stocks in our coverage universe (we’d like to see a more clear path towards stronger revenue growth), we see more potential upside than downside to the stock given D2L’s strong competitive position in higher-ed and ramping profitability.”

* Canaccord Genuity’s Yuri Lynk raised his North American Construction Group Ltd. (NOA-T) target to $33 from $32 with a “buy” rating, while Raymond James’ Frederic Bastien increased his target to $40 from $35 with an “outperform” rating. The average is $39.50.

“We reiterate our Outperform rating on North American Construction Group and raise our target price to $40 from $35 after the amendment of a regional services contract with a major oilsands producer (which we understand to be Suncor) and management’s preliminary outlook for 2025. Our view is that this contract extension removes the biggest overhang on the stock today, providing NACG with visibility on its oil sands operations through 2028. This, combined with the continued progression of Aussie contract miner MacKellar, leaves us upbeat on the firm’s prospects heading into 2025,” said Mr. Bastien.